COMMENTARY: China Targets Consumers in Bid to Lift Economy
With the rest of the world mired in coronavirus-driven meltdown, factories will have to wait to crank up to full production. For now, consumption is king.
China faces a delicate balance – trying to get businesses up and running as much as possible while taking steps to avoid a resurgence of the coronavirus. Economic leaders in Beijing are coming under increasing criticism from abroad for not doing what the West is doing – spending trillions of dollars on economic stimulus.
There are a couple of problems with this. One is that China's debt levels, in part left over from its big spending binge in the wake of the 2008 financial crisis, leave it much less room to maneuver in 2020.
But there's something more fundamental. When you're still trying to keep people apart (yes, China is quite worried about a viral comeback), what sense does it make to overstimulate the economy? This is not 2008, when it was a daunting but relatively simple matter of spending lots and lots of dollars and yuan to get the economic gears turning again. Now we have a virus forcing people apart, and no amount of money is going to fix that. What we need are time and public will to stick with social distancing. This is why much of the U.S. effort is going to fall flat for a while, in what might come as a shock to overly optimistic investors.
There is another factor for China: It stands in the unique position of trying to revive its economy while business in the rest of the world plunges amid the pandemic. It can't just go full bore on its factory production because demand from overseas has vanished.
As a result, economic leaders in Beijing have settled on trying to stimulate domestic consumer spending. They will worry about the factories later, when the world is ready.
The government is taking a multipronged stab at jump-starting consumption, including in the all-important vehicle industry. Caixin reports that at least a dozen local governments are offering tax breaks and subsidies to boost car sales.
Even in the coronavirus epicenter of Wuhan, where people were finally allowed to leave this week, car sales are picking up dramatically. Dealerships reopened about two weeks ago, and some are saying sales have returned to pre-pandemic levels after dropping to almost nothing, according to a Bloomberg report.
The Guangzhou municipal government said it would release more car license plates for auction and help subsidize buyers to purchase vehicles, Caixin reported. Among other local government auto industry stimulus activities, residents of Shenzhen's Futian and other districts receive cash coupons for auto purchases.
Vouchers for general spending purposes are the order of the day in several other cities, including Hangzhou, a one-hour train ride from Shanghai and home to e-commerce giant Alibaba. Some 200 million yuan worth of vouchers have been redeemed, the Trivium research group said this week, leading to 2.2 trillion ($313 million) in personal spending. It says that success is prompting the Hangzhou government to plan another 500 million yuan in voucher releases before the end of May.
Here's the catch on the vouchers. They come with an expiration date; they must either be spent or become worthless in a short period of time. This, of course, is exactly the point of a stimulus plan. It's getting people into stores and e-commerce sites right away. It's a great idea.
Wuhan officials are finding another, more creative way of spurring consumer spending – by going onto the popular short video site Douyin in a live-streaming campaign. The so-called "Mayors Show Hubei to You" kicked off on Wednesday with an introduction by Wuhan official Li Qiang just after the 76-day lockdown on the city lifted, the South China Morning Post reported.
In all, mayors from 13 cities in Hubei province will participate in the campaign to promote products from the province, according to a post on the province's WeChat page.
With trains and now airlines opening up, the authorities in China also are finally encouraging domestic tourism again – another boost to the economy. During the recent Tomb-Sweeping holiday (known as Qingming Festival), the spectacular and popular Mount Huangshan geopark in Anhui province was overrun. Tourists exceeded the 20,000-person limit just hours after the park opened, and pictures were posted on social media of trails so jammed that hikers could barely move.
Tourism is certainly up from the depths of February and March but far from normal. While more than 43 million tourist trips were taken during the holiday, that was down by 61% compared to 2019. The number of day trips increased as people sought to avoid spending the night away from home.
Week by week, restaurants and shopping malls are seeing an increase in customers all around China, but the authorities remain guarded even as new coronavirus cases have slowed to a trickle in recent weeks.
The State Council issued guidance this week that requires local governments to test more people who are at risk of exposure. Hospitals must report asymptomatic cases within two hours of getting results. Local branches of the Chinese Center for Disease Control and Prevention are required to conduct contact tracing within 24 hours of a diagnosis, and asymptomatic carriers will be centrally quarantined for 14 days and can only be released upon testing negative two consecutive times.
All in all, getting economic growth to return to China is a gargantuan struggle. Companies the world over have for decades been trying to get in on China's massive middle-class spending boom. A few have been successful.
Now it's time for China's own companies to take more advantage of that same market as they wait, for who knows how long, for the rest of the world to recover.